Collection Profile Colombia
Transcription
Collection Profile Colombia
Euler Hermes Collections Collection Profile Colombia Collecting in Colombia • • The payment behavior of domestic companies is good but DSO remains high and late payments are frequent. • When it comes to insolvent debtors, collecting debt is a genuine challenge and, overall, negotiating payment during the pre-legal action phase remains the most efficient alternative. The court system lacks transparency and procedural costs and delays are significant so that court proceedings overall should be avoided. Collection complexity Notable High Complexity relating to Payments Court proceedings Insolvency proceedings Very High Severe Notable Severe World Bank Doing Business Insolvency rating for 2016: 30/189 countries (against 28/189 countries in 2015). Contents General Information.........................................................................................................................................3 Availability of financial information................................................................................................................3 Main corporate structures................................................................................................................................3 Regulatory environment...................................................................................................................................3 Getting Paid.........................................................................................................................................................4 Days Sales Outstanding (DSO)........................................................................................................................4 Late payment interest........................................................................................................................................4 Debt collection costs.........................................................................................................................................4 Payments..............................................................................................................................................................4 Collecting Overdues.........................................................................................................................................5 Amicable action.................................................................................................................................................. 5 Legal action.......................................................................................................................................................... 5 Alternatives to legal action...............................................................................................................................6 Handling Insolvent Debtors........................................................................................................................... 7 Insolvency proceedings.................................................................................................................................... 7 General information Availability of financial information Companies must report their financial information annually to the Superintendence of Corporations (Superintendencia de Sociedades de Colombia) and the Commerce Chambers (Camara de Comercio) located in the main cities. However, relevant and reliable financial information is difficult to obtain as the system lacks transparency. Private channels may help obtain reputational data and use of specialized providers is recommended. Euler Hermes allocates each company a grade reflecting its financial health and how it conducts business. EH grades represent a core of Euler Hermes’ knowledge and analyses, helping clients identify and avoid risk. Data is continuously monitored to offer the most up-to-date information to support management decisions. Days Sales Outstanding (DSO): Payment terms in Colombia usually provide for 30 to 60 days payment. However, the average DSO stands more around 60 days. Main corporate structures Liability for business debts is determined by legal structures, which may be described as follows: • Limited Partnerships (Sociedad en Comandita) involve one or more managing partners (jointly liable for the company‘s operations and debts) together with silent partners. Partners are liable in two different ways: a backer’s liability is limited to the amount contributed whilst a representative shares full responsibility. • Limited Liability Companies (Ltda.) require a minimum of two partners (up to 25), each liable for the amount of their capital contributions. Management is made through a Board of partners and decisions are taken in proportion with the partners‘ shares. Corporations (SA) require a minimum of five shareholders, each being liable for the amount of its capital contribution. Simplified Shares Corporations (SAS) are increasingly relied upon as the main incorporated structure as they may be owned by a single shareholder, whose liability is also strictly limited to its contribution. Regulatory environment Colombia has a codified Civil Law system inspired by continental legal frameworks, distinguishing constitutional and administrative jurisdiction from ordinary (civil and commercial) jurisdiction. At the first instance, claims are allocated to Municipal Courts and Circuit Courts depending on the amount of the claim. Different Courts of Appeal (Tribunales Superiores del Distrito Judicial) then deal with cases in their specific districts, depending on their expertise. Civil procedure is governed by the Civil Procedure Code (Decrees No. 1400 and No. 2019 of 1970) - the last amendment (Law No. 1564 of 2012) coming into force in January 2014. Colombia also has a codified Commercial Law with a special policy and judgment process for companies and debtors. In a Civil Court, judges apply different policies for companies and private individuals. Where an individual trades as a company, the judge could apply both poilicies. Colombian judiciary is influenced by political authorities and authority given to the rule of law has room for improvement. 3 Late payment interest: The law provides a maximum interest rate (Tasa de Usura). Each entity is given liberty in deciding whether or not interest will be charged. Getting Paid Days Sales Outstanding (DSO) Payment terms in Colombia usually provide 30 to 60 days for payment. However, the average DSO stands more around 60 days as transactions tend to be delayed by 10 to 30 days on average. Late payment interest It is possible to charge interest for late payment in Colombia however the system is singular. Instead of providing a minimum interest rate in case late payment occurs, the law provides a maximum interest rate (Tasa de Usura) applicable in case of late payment, and each entity is given liberty in deciding whether or not interest will be charged. Debt collection costs Article 1629 of the Colombian Civil Procedure Code clearly stipulates that all cost caused by collection activities are to be supported by the debtor provided that costs and efforts undertaken to recover the debt may be justified. Payments The most common payment methods are as follows: Swift bank transfers are amongst the most popular payment methods as they are fast, secured, and supported by an increasingly developed banking network internationally and domestically. Export transactions are usually guaranteed through an Export Credit Insurance policy, which helps to minimize the risk of sudden or unexpected customer insolvency. Euler Hermes’ worldwide network of risk offices monitors the financial well-being of your customers and grants them a specific credit limit up to which you may trade and claim should something go wrong. Alternatively, Standby Letters of Credit (a bank guarantees the debtor’s credit quality and repayment abilities) constitute reliable guarantees which can be interpreted as a sign of good faith since they can be triggered as a ‘payment of last resort’ if the client fails to fulfil a contractual commitment. Also, irrevocable and confirmed Documentary Letters of Credit (a debtor guarantees that a certain amount of money is made available to a beneficiary through a bank once certain terms specifically agreed by the parties have been met) may be considered. Generally speaking, bank guarantees often tend to be expensive. As a result, negotiating down payments is common and advisable. Bills of exchange (and promissory notes) support nearly 90% of business transactions in the country and tend to be considered as debt recognition titles which could help gain access to accelerated proceedings before the courts. 4 Collecting overdues Amicable action Negotiating As a result of the last amendment of 2012, civil and commercial procedures ought to become more oral in the future but, in the meantime, formal legal action remains overly lengthy and unreliable. As a result, amicable settlement opportunities should always be considered as a strong alternative to formal proceedings. As a matter of fact, it is actually mandatory (under Law 640 of 2001) to conduct conciliation or mediation hearings before commencing formal proceedings (and pre-trial mediation must also be conducted in administrative litigations under Statutory Law of Justice Administration n°270 of 1996). Before starting legal proceedings against a debtor, in addition, assessment of its solvency and assets is essential as it allows verification as to whether the company is still active and whether recovery chances are at best: if insolvency proceedings have been initiated, indeed, it often becomes impossible to enforce a debt (see below). It is worth noting that most conciliations are agreed before the matter goes to court as an attorney will look to resolve the matter in conciliation or arbitration centres. Legal action Ordinary proceedings Ordinary legal action would usually commence when amicable collection has failed. When the debt is certain and undisputed (for instance if a promissory note or bill of exchange is available as provided under Law 1321 of 2008) the creditors may initiate summary proceedings to obtain a Payment Order, in which case the debtor must comply with the decision (or bring a defence) within four to ten days. Having said this, Law 1231 has made it more difficult to commence proceedings on the basis of a bill because it has established various restrictive conditions to their admissibility. Otherwise, formal proceedings may commence as soon as a judge has authorized the action and the debtor has been served with a Writ. The debtor must answer the claim within twenty days, but any failure of the defendant to bring a defence would normally lead the judge to issue a default judgment depriving the defendant from their right to appeal. Otherwise, the courts would systematically invite the parties to attend a mediation proceeding in order to reach an agreement. If the parties fail to do so, evidence collection may commence, and the court will consider the parties arguments before rendering a decision. The courts would usually award specific performance or issue an order to execute an obligation or abstain from doing something. As a rule, the claimant must be fully compensated so the courts tend to award damages by taking into account profit losses. Similarly, interest on overdue debts is usually awarded upon the claimant’s request. There are however no punitive damaged under Colombian law. Necessary documents • Copies of invoices • Promissory notes • Detailed account status • General information about debtor Time limitations As a general rule, claims must be brought within specific periods of time which vary depending on the subject matter. Ordinary proceedings must be brought within ten years, debt-related claims within five years (six months for bad cheques, three years for negotiable instruments). Insurance and transportation claims must be presented within two years. Courts have no authority to alter time limitations which are considered a matter of substantive law, but cases are rarely dismissed because of time limitation issue. Provisional measures Provisional measures (autos) may help to preserve the creditor’s interests pending a final and enforceable judgment. Indeed, the courts may order protective pre-action measures such as attachment and sequestration of the defendant’s assets, ex parte (without the presence of both parties) to avoid irreparable damage, preserve the status quo or to protect evidence. The courts would however usually order the claimant to provide security on costs in order to protect the respondent from irresponsible action. Lodging an appeal The parties may lodge an appeal within three days of service. Decisions rendered in the first instance are brought before the Court of Appeal, but Supreme Courts only rarely reviews decisions rendered in appeal (casación). Arbitration awards are not subject to appeal. Collection @ Euler Hermes It is always advised to attempt collection prior to any legal action in order to maximize chances of successful recovery and avoid legal costs and delays. Our key principle is to collect in close proximity to the debtor, using a series of letters, emails and phone calls in the local debtor language. Our World Collection Network of Euler Hermes offices and External Providers are experts in professional trade debt collection and negotiation, ensuring positive outcomes whilst retaining important client relationships. Euler Hermes can handle the complete collections process from amicable, pre-legal action through to judgment and enforcement. 5 Enforcing court decisions A judgment is enforceable as soon as it becomes final (i.e. when all appeal venues have been exhausted). Enforcement proceedings may then commence. Usually, compulsory enforcement would occur through the seizure and auctioning of the debtor’s assets, but garnishment orders allowing collection of the debt from a third party owing money to the debtor may also be delivered. How long could legal action take? By law, (Law 1395 of 2010), first instance decisions in Colombia ought to be rendered within a year, whilst Courts of Appeal ought to render their decisions within an additional six months period of time. In practice, it may take five years to obtain a first instance ruling whilst a full disputed lawsuit could spread over 10 years. In principle, domestic courts would not take longer to deal with cases involving a foreign party than to deal with cases involving domestic parties only. In practice, some extra delays would nonetheless occur depending on the complexity of each case. How much could this cost? As a general rule, the winning party may demand the court to hold the defeated party liable for the payment of the judicial tariff paid during the collection phase, the court fees as well as for part of its legal costs. Following the decision to strike down Law 1653 of 2013, Law 1394 of 2010 is now in effect. This law statest that a court fee of 2% of the monetary claim applies once the legal process has been completed. Conditional arrangements whereby attorneys are not paid upfront but instead receive a fixed sum upon success and contingent fees whereby the legal professionals are entitled to receive a percentage of the final award are common in Colombia. Use of third-party litigation funding companies is also common. Alternatives to legal action Alternative Dispute Resolution methods (ADR) As previously mentioned, use of Alternative Dispute Resolution methods has increased over the last years following the introduction of mandatory conciliation proceedings as a prerequisite to bringing a claim before the courts (Law 640 of 2001). The settlement agreements achieved through this phase are binding and enforceable as final judgments. In addition, domestic or international arbitration proceedings provide for confidential settlement opportunities whilst arbitral awards are final and enforceable. Though Arbitrators are entitled to grant interim relief, ADR methods have shown no monetary benefit because they are expensive and often do not resolve the conflict. If legal action is subsequently taken, proceedings are not influenced by any issues resolved during the arbitration. Foreign forums It is relevant to emphasize that Colombian law does not allow the parties to a contract to limit or waive the jurisdiction of Colombian courts through foreign jurisdiction clauses. In practice, the courts of Colombia strongly protect their role towards public policy preservation and have thus only admitted foreign jurisdiction clauses in international arbitration proceedings (Article 62 of Law 1563/2012) or where the contract was to be executed abroad (article 869 of the Commercial Code). Enforcing foreign awards Although foreign decisions against Colombian debtors aiming at bypassing the authority of Colombian courts would not be enforced in Colombia (except in case of arbitration), domestic courts would normally enforce foreign judgments provided that they have been recognized by the Supreme Court of Justice, through an exequatur procedure, as having the value of a local judgment (Article 694 of the Civil Procedure Code). The court would typically verify whether the foreign award is final and enforceable in the issuing country and whether the foreign court was seized with a matter normally falling under the exclusive jurisdiction of Colombian courts. It would also verify that the foreign decision was rendered without fraud whilst providing the parties with a due process of law. Of course, the foreign decision must be compatible with Colombian public policy. Recognition finally depends on reciprocity, which means that Colombian Courts will not recognize and enforce foreign decisions issued in countries which do not recognize Colombian decisions. Once exequatur is granted, the interested party may commence execution proceedings before a lower court. In addition, Colombia is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. Therefore, domestic courts also ought to recognize and enforce decisions rendered through international arbitration proceedings. Litigation @ Euler Hermes Should legal action be necessary Euler Hermes can provide support throughout the legal process from judgment to enforcement via our World Collection Network of Euler Hermes offices and External Providers. Legal action can often be complicated and expensive, you will be informed of all costs prior to any action and advised on which route is best to take. 6 Handling insolvent debtors A debtor is deemed insolvent when it faces the imminent inability to satisfy its obligations, or whenever it fails to satisfy two or more obligations representing 10% or more of its total liabilities for a period exceeding ninety days. The Colombian Insolvency Act (Law 1116 of 2006) provides for reorganization proceedings similar to U.S. Chapter 11 proceedings, as well as judicial liquidation proceedings (similar to U.S. Chapter 7). Insolvency proceedings Out-of-Court proceedings Out-of-Court negotiations allow debtors to discuss debt restructuration with their creditors before they have become insolvent. The rules of normal court proceedings are applied informally, but the final agreement must be validated by an insolvency judge. Restructuring the debt Debt restructuration proceedings are becoming increasingly efficient and may be commenced upon the filing of a petition by the debtor, by one or more of the defaulted creditors, or by the Superintendent. If the court admits the petition, the debtor is deemed insolvent and all enforcement claims are stayed: secured creditors lose their preferential treatment and their guarantees are put on hold until the reorganization plan is terminated. The reorganization plan submitted by the debtor must be approved by its creditors (simple majority of the five voting classes / or a 75% majority notwithstanding debtors’ classes) and by the judge to be final and binding. The company’s Directors often retain power to manage the business under the supervision of the Creditors’ Committee, but the court may in certain circumstances designate a different ‘Promoter’. Where a Promoter is assigned, the management role is taken by the Promoter. If the Company Director want to continue managing the company, authorisation is needed from the creditors. Debt reorganization proceedings terminate upon compliance of all obligations by the debtor, or turn into a liquidation procedure if implementation of the plan fails. Winding up proceedings Liquidation proceedings typically occur as a result of a failure to reach a reorganization compromise, or where the debtor has failed to abide by the negotiated terms. Liquidation may otherwise be ordered upon at the request of both the debtor and the creditors. A liquidator is appointed to establish a list of the creditors’ claims, and to manage the estate’s liquidation. Priority rules Priority is always given to secured credits which include court costs. Priority rules normally apply whilst distributing the proceeds to the creditors and the Civil Procedure Code (Articles 2495, 2497 and 2506) define how the credits should be repaid. Five classes of creditors would be considered by order of priority: employees’ salaries and tax credits, credits with pledge, credits with mortgage, suppliers, and credits without previous preferences. How long could insolvency proceedings take? Although it is difficult to provide an average duration of insolvency proceedings, these could last for over seven years. Necessary documents The reorganization judge must normally receive original bills, promissory notes or any other document to support the debt. Insolvency @ Euler Hermes Euler Hermes work closely with debtors, creditors and lawyers to provide support during insolvency and restructuring processes. With many options available when it comes to insolvency action, we can offer advice on which option is suitable. 7 © Copyright 2016 Euler Hermes Collections. All rights reserved. Euler Hermes Collections provide a global commercial debt collection service with true end-to-end capability. It is part of Euler Hermes, a company of Allianz, leader in credit insurance solutions helping companies grow their business safely at home and abroad. Euler Hermes Collections manage both domestic and international trade debt collection services worldwide. Through our network of Euler Hermes sister offices and partners, we use our experience and knowledge of local markets to ensure a professional service for our clients from pre-legal action through to legal proceedings. Visit Euler Hermes Collections: www.eulerhermes-collections.com Contact Euler Hermes Collections: [email protected] Country Profile: Colombia Apr 16 This Collection Profile is published by Euler Hermes Collections, part of the Euler Hermes Group and a company of Allianz, for information purposes only. The information provided therein shall not be regarded as providing any legal advice or advice of any kind. Readers should make their own independent evaluation of this information and under no circumstances shall any action be undertaken solely relying on it whilst legal advice should at all times be sought with legal practitioners. Whilst this information has been collected and drafted by recognised experts in their field and it is believed to be correct and reliable, Euler Hermes Collections makes no warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited and Collection Profiles are subject to change without notice.